Local pain from state's sickness

Cutbacks in government workforce, salaries hurt spending, building rentals

By ERIC ANDERSON Business editor

Published 3:56 pm, Saturday, August 7, 2010

ALBANY -- The pain of the state's money woes will hit home in coming months, as local governments cope with aid cutbacks, retailers see spending reductions and landlords lose state tenants as offices are consolidated.

"The state's fiscal crisis certainly has a tremendous impact across the board," said F. Michael Tucker, president of the Center for Economic Growth, a regional economic development organization with its office in Albany.

Others agree. In recent weeks, Gov. David Paterson has warned of as many as 1,000 state layoffs as he seeks to cut $250 million in costs.

"When stories come out that there's going to be a layoff of state employees, I think it can't help but trickle into how we behave as consumers in the Capital Region," said Ted Potrikus, executive vice president and director of government relations for the Retail Council of New York State. "It's going to make you think twice about making a big purchase or making a bunch of little purchases."

Even if state workers aren't laid off, freezes in salaries and benefits will have an impact.

"A very high percentage of total employment in the Capital Region is state employment," said Hugh Johnson, chairman and CEO of Albany-based Hugh Johnson Advisors. "At a minimum, compensation levels will be frozen. Most likely there will be some reductions in staff."

It's a problem state governments across the nation are facing, he said. Even Federal Reserve Chairman Ben Bernanke is concerned, Johnson said.

"Bernanke talked about the fact that the U.S. recovery is not on firm footing, and one of the reasons is cutbacks at the state level," Johnson said.

The union representing most of the region's state workers, the Civil Service Employees Association, isn't as worried about a cutback in state jobs as it is about local layoffs.

"It's not going to happen," said Stephen Madarasz, a spokesman for the CSEA. Paterson "can say whatever he wants but we have a signed agreement. This has already been held up by the courts."

But where Madarasz sees the impact is at the local government level.

"We're looking at significant impacts locally on counties, towns and school districts," thanks to reduced state aid.

The CSEA represents 30,000 state employees and another 15,000 local employees in the Capital Region. As local governments sit down in coming months to draw up their budgets for next year, Madarasz fears it could be the jobs of local CSEA members that are at risk.

But he also says that, so far, towns have been willing to look at other ways to cut costs, such as considering new health insurance and prescription drug plans.

"In many localities we seem to be having an easier time of labor and management working together to try to address the problem," Madarasz said. "With the state of New York, we have no relationship whatsoever."

The impact of state government cutbacks already is being felt. Employment, for example, has dropped steadily. In the past year alone it declined by 3 percent in the Capital Region, or 1,600 jobs, to 50,600 from 52,200, according to the state Department of Labor.

And the state Office of General Services says it anticipates the retirement of hundreds of additional state employees and is making plans to reduce the amount of space needed for state offices.

State jobs typically offer above-average pay. Last year, the average pay of a state worker was $55,869. For all workers, the average pay was $44,881.

Local government employment also declined over the past year, down 1,000 jobs to 50,200. Average pay was $43,121.

In addition to the lost wages from layoffs, the state also has been delaying payments to vendors, and it is moving offices out of privately owned buildings to vacant space in state-owned buildings. That reverses a trend started during the Pataki administration to put state workers in the region's downtowns in an effort to revitalize the cities.

Georgette Steffens, executive director of the Downtown Albany Business Improvement District, said at least three agencies have left or are planning to leave. One occupied 70,000 square feet downtown, a second 20,000 square feet, and a third employed more than 400 workers, although she didn't have the number of square feet it occupied.

All were in private buildings, and their departure is not only boosting vacancy ratings, but also likely will lower assessments and property values, Steffens said.

That could reduce property tax revenues, necessitating further cutbacks, she fears. And the departure of the state agencies also removes people from downtown sidewalks who might have spent money dining or shopping.

The state is a big player in local real estate. It spends $50 million a year to lease 4.7 million square feet of office space in Albany, Rensselaer and Schenectady counties, said OGS spokeswoman Heather Groll.

"The public sector is facing the same economic challenges as the private sector and has responded with an aggressive program of smart sizing agencies through reductions in square footage to reduce the amount of leased space and to achieve additional cost savings by negotiating extended periods of rent abatement," she said. The state saved $1.8 million last fiscal year and anticipates saving $1.9 million this year, Groll said.

Still, the Capital Region may be well-positioned to weather the state's woes, some believe.

"It'll be a drag, but not in the high thousands" of jobs, he said. "These people in many cases will be collecting pensions. They'll still have their health benefits."

And many of those dollars will continue to flow through the local economy.

He also pointed out that the state's tax collections have been relatively strong.

Tucker, of the Center for Economic Growth, also sees a silver lining.

"It's an opportunity for people to start their own businesses and become entrepreneurs," he said. "This will give us the opportunity to reshape our economy and not be so dependent on government, education and health care," the three dominant sectors of the current local economy, he added. "It'll force all of us to redouble our efforts to strengthen the private-sector economy."

Johnson is skeptical.

"That would be great, but who is going to take the lead?" he asked. "The Capital Region has been commendable on the extent to which it has built its technology sector. But that started in the early 1990s.

"That's very slow moving and it won't help us in 2011 or 2012," he added.

Still, Johnson thinks the Capital Region "will do fine relative to other places in New York state. But it's obviously going to be restrained by the fact that we're so dependent on the state."

And he suggests that New York may want to take steps to stimulate the economy, not dampen it. He points to Indiana, which he said is reducing taxes to stimulate spending.

"New York state has to be very sensitive to stimulus through tax cuts, even though it seems totally implausible. It's not," he said.

"The proper incentives for the private sector, you really can help," Johnson added. "Deficits can turn into surpluses very quickly."